State Bank of India recently announced its quarterly net profit. The profit posted had an unexpected fall and had filtered estimates by massive margin. The profits also highlights the criticism by the higher provisions for bad loans, operating costs and taxes.

Thus, the bank has to decide to pay a dividend at Rs 30 per share. Subsequently, there was a drop in the stock by 8.26 per cent touching Rs 2,401 on the Bombay Stock Exchange (BSE) during intra-day trade. However, It finally closed down at 7.78 per cent at Rs 2413.60 for the day.

The Bank further reported that provisions for bad loans in the fiscal fourth quarter rose 49 per cent to Rs 3264 crores from Rs 2187 crores a year ago. Also, the operating costs increased from Rs 6036 crores to Rs 6794 crores in a year.

Along with this, the Tax expenses in the quarter nearly doubled to Rs 1900 crores. The annual increase in bank's net non-performing assets was seen from from Rs 10870 crores to Rs 12350 crores at March-end this year.

In response to concerns raised by the RBI, the State Bank withdrew a special home loan scheme in May. The scheme was withdrawn in the light of worries raised by RBI that this teaser loan could significantly raise banks' bad loans.

The teaser loan scheme was launched, following the global economic downturn, as a special home loan scheme to boost loan demand in the country. But many anaylsts had expressed concern about it creating more bad loans for the bank.

An increase in the interest rate and a slowing down credit growth is expected in this fiscal year. The increase in rate is expected to be imposed by the RBI to tame inflation that rose an annual 8.66 per cent in April, higher than expected. The increase in rates by a hefty 50 basis points by RBI, earlier this month and its hawkish statement has prompted economists to raise their forecasts for interest rates this year.

Bank loans rose 21.9 per cent on the year as of April 22, the RBI's latest data showed, up from 17.1 per cent in the same period last year, but slowing from a 24.4 per cent rise on year as of Dec. 31 last year. Surging interest rates would crimp loan growth this fiscal year to 17-19 per cent, from a January target of 20-22 per cent said State Bank Chairman, Pratip Chaudhuri.

Following the rate hike by the RBI earlier this month, the rival domestic banks to SBI, including ICICI Bank and Kotak Mahindra Bank , raised their benchmark lending rates. State Bank and its associate banks posted a net profit of Rs 20.9 ($4.6 million) in the fourth quarter in comparison to Rs 1867 crores a year ago. SBi and its associates control the bank loans and deposits.

Also, net interest income rose nearly 20 per cent to Rs 8058 crores. As on Monday, the shares of State Bank, valued at $37 billion, have fallen by 7 per cent this year compared with a 10 per cent drop in the Mumbai market index .